Pullback Expected

• The FBM KLCI (+0.6%) outperformed its regional peers, finishing on an upbeat note on Tuesday, boosted by buyingsupport in Hong Leong-related companies. All the lower liners, however, fell amid follow-through selling-pressure on a mixed broader market.

• Market breadth stayed negative as losers continued to outweighed winners on a ratio of 563-to-443 stocks. Traded volumes rose marginally by 1.6% to 2.76 bln shares amid the selling-pressure on the lower liners.

• Significant key-index winners were Hong Leong Financial Group (+74.0 sen), Hong Leong Bank (+56.0 sen), PPB Group (+46.0 sen), Hap Seng Consolidated (+27.0 sen) and Petronas Gas (+24.0 sen). Broader market chart-toppers, meanwhile, include Dutch Lady (+RM2.20), Ajinomoto (+56.0 sen), Muda Holdings (+39.0 sen), Genting Plantations (+30.0 sen) and Carlsberg (+28.0 sen).

• On the flipside, BAT (-RM1.80) led the Main Board lower, followed by Latitud Tree (-33.0 sen), Tong Herr Resources (- 33.0 sen) and Magni-Tech Industries (- 27.0 sen). Meanwhile, Pos Malaysia fell 57.0 sen after reporting lower-thanexpected bottomline. The only four blue chip constituents to fall on Tuesday were Axiata (-13.0 sen), YTL (-2.0 sen), Astro Malaysia (-1.0 sen) and Digi (-1.0 sen).

• Meanwhile, major regional stockmarkets erased earlier gains, closing lower amid waning risk appetite as investors await for Federal Reserve Chairperson Jerome Powell’s testimony before the Congress. The Nikkei (+1.1%) however, held onto its gains as the Yen eases. The Shanghai Composite index (-1.1%) and the Hang Seng (-0.7%) also lost their footing and finished in the negative territory on Tuesday, together with the majority of ASEAN stockmarkets.

• U.S. equities took a beating after Federal Reserve Chairman Jerome Powell outlined aggressive monetary policies which spooked the market into sharp selling. The Dow lost 1.2% - closing slightly above the 25,410.0 psychological points. Tech-laden bourses – the S&P 500 (-1.3%) and the Nasdaq (-1.2%) also slid on Tuesday’s close, despite upbeat housing and consumer data.
• European stockmarkets were splashed in red as investors digested the latest corporate results and rising U.S. Treasury yields amid expectations of rising interest rates. The FTSE lost 0.1%, albeit the losses were slightly offset by gains in Sky (+20.5%) after U.S. media titan Comcast offered to buy the British broadcaster for US$30.9 bln. The DAX also lost 0.3%, while the CAC closed unchanged.

THE DAY AHEAD

• With global equity indices closing in the red overnight, we expect regional indices to also react negatively to the Federal Reserves’ potential aggressive interest rate normalisation moves. We also see the negativity spreading to the local bourse as well and profit taking activities are likely to take center stage that will erase some of yesterday’s gains.

• We expect the key index to fall below the 1,870 level with the profit taking activities, but we think the selling could remain mild for now given that there should be ample support at the 1,860 level. The resistance at 1,880 level, on the other hand, will remain a significant hurdle to clear unless there are new compelling catalysts to lift the market higher, in our view.

• Meanwhile, we also see the lower liners and broader market shares staying on the wayside with the ongoing results reporting season providing few positive leads for retail players to follow. Therefore, the mixed-to-lower trend is likely to persist for longer, in tandem with the general market weakness.

COMPANY UPDATE

• Oldtown Bhd’s 3QFY18 net profit plunged 52.2% Y.o.Y to RM11.6 mln, from RM24.4 mln a year ago, mainly due to thinner margins and a forex loss of RM1.9 mln. Quarterly revenue also declined marginally by 1.0% Y.o.Y to RM114.6 mln, from RM115.8 mln in the previous corresponding period.
• Subsequently, cumulative 9MFY18 net profit narrowed 14.2% Y.o.Y to RM43.6 mln, from RM50.9 mln in 9MFY17, despite a 6.3% Y.o.Y growth in revenue. The weaker bottomline resulted from the significantly weaker 3QFY18 performance, pressured by rising raw materials prices and the stronger Ringgit.

Comments

• The reported earnings were below our expectations, accounting to only 57.0% of our previous FY18 forecast net profit of RM76.5 mln, although revenue was within our forecast – coming in at 69.5% of our full year revenue estimate of RM486.5 mln. This comes as a surprise to us as Oldtown usually performs better in the second half of its financial year, owing to seasonal offers and promotions. This time, the difference was mainly due to weaker-than-expected contribution from the FMCG segment, hampered by higher cost of sales and negative forex movements.

• As the reported earnings were below our estimates, we adjust our FY18 net profit forecast lower by 18.1% to RM62.6 mln to reflect the thinner margins, following rising operational costs and appreciating Ringgit.
• However, we maintain our HOLD recommendation on Oldtown with a higher target price of RM3.20 (slightly higher compared to the takeover offer price offered by Jacobs Douwe Egberts' after rolling forward our valuations to FY19.
• Our target price is derived from ascribing a higher target PER of 22.0x (to reflect the higher valuations of consumer products bellwethers like Nestle and Dutch Lady) to Oldtown’s FY19 EPS of 14.7 sen.

• Kimlun Corporation Bhd’s 4Q2017 net profit improved marginally by 0.4% Y.o.Y to RM24.3 mln as growth on the topline was offset by the higher operating expenses, a one-off provision of doubtful debt amounting to RM4.3 mln and a foreign exchange loss. Revenue for the quarter, however, gained 58.1% Y.o.Y to RM372.1 mln.

• For 2017, cumulative net profit fell 16.1% Y.o.Y to RM68.7 mln. Revenue for the year, however, climbed 4.7% Y.o.Y to RM985.2 mln. The reported earnings came in above our expectations, accounting to 114.2% of our full year estimated net profit of RM60.2 mln. Meanwhile, the reported revenue also above our expectation, accounting to 121.2% of our full year revenue forecast of RM812.6 mln on higher contribution from both the construction and property development segments.

Comments

• With the reported earnings coming above our estimates, we raised our earnings forecast by 27.3% and 12.1% to RM76.6 mln and RM86.4 mln for 2018 and 2019 respectively, to account for the higher construction segment margins, coupled with the pickup in delivery of manufacturing orders.

• We upgrade our recommendation on Kimlun to BUY with a higher target price of RM2.60 (from RM2.40). Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2018 construction earnings and PER of 6.0x (unchanged) to its manufacturing earnings, while its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale development projects.

• Mitrajaya Holdings Bhd’s 4Q2017 net profit sank 60.5% Y.o.Y to RM17.3 mln, dragged down by a provision for cost overrun for the RAPID project, rising material and labour cost that resulted in the erosion of construction margins and lower property sales amid the generally soft property market. Revenue for the quarter declined marginally by 1.6% Y.o.Y to RM269.3 mln.

• For 2017, cumulative net profit fell 32.2% Y.o.Y to RM80.5 mln. Revenue for the year, however, climbed 20.5% Y.o.Y to RM1.16 bln. The reported earnings came above our expectations, amounting to 117.7% of our 2017 net profit forecast of RM68.4 mln, while revenue for the year came within our expectations, accounting to 100.9% of our RM1.15 bln forecast.

Comments

• We lift our earnings forecast for 2018 and 2019 by 7.8% and 8.2% to RM81.7 mln and RM89.6 mln respectively to account for lesser-than-expected construction costs overrun in certain construction projects coupled with lower depreciation charges. We also maintain our BUY recommendation on Mitrajaya with a higher target price of RM1.05 (from RM0.95).
• Our target price is derived from sum-ofparts valuation as we ascribed a unchanged target PER of 13.0x to its 2018 (fully diluted) construction earnings, while its local and overseas property development units are valued at an unchanged 0.8x their respective book values.
• Protasco Bhd’s 4Q2017 net profit surged 22.8x Y.o.Y to RM8.7 mln, lifted by higher contribution from both the maintenance and engineering services segment, coupled with lower operating expenses. Revenue for the quarter gained 19.3% Y.o.Y to RM313.6 mln.

• For 2017, however, net profit slipped 28.8% Y.o.Y to RM30.2 mln. Revenue for the year fell 12.9% Y.o.Y to RM966.8 mln. The reported earnings only amounted to 87.4% of our 2017 earnings forecast of RM34.5 mln, whilst the reported revenue came slightly ahead of our expectations, amounting to 103.5% of our full year estimate of RM934.2 mln. The variance in earnings was due to higher minority interest of RM20.3 mln vs. our forecast of RM15.5 mln. On the pretax level, the reported pretax profit of RM71.7 mln was within our estimates, amounting to 103.2% of our forecast.

Comments

• We trimmed our earnings forecast by 12.4% and 7.6% to RM37.4 mln and RM39.0 mln for 2018 and 2019 respectively. Consequently, we downgrade Protasco to HOLD recommendation with a lower target price at RM1.10 (from RM1.20).

• We arrive our target price on a sum-ofparts basis by ascribing an unchanged target PER of 11.0x to its 2018 construction earnings as well as a target PER of 8.0x (unchanged) to its 2018 concession and engineering services’ earnings. Its education and trading units’ valuations remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses, while its property development division’s valuation is from ascribing an unchanged 0.6x to its BV.
• Engtex Group Bhd’s 4Q2017 net profit decreased 11.6% Y.o.Y to RM12.1 mln, dragged down by the lower demand in certain metal products in light of the volatility in metal prices, whilst the hospitality segment is still in the red. Revenue for the quarter, however, added 17.3% Y.o.Y to RM309.7 mln.
• For 2017, cumulative net profit declined 8.0% Y.o.Y to RM54.4 mln. Revenue for the year, however, climbed 3.2% Y.o.Y to RM1.11 bln. Both the reported earnings and revenue came within expectations – accounting to 97.0% and 103.2% our full year estimated net profit and revenue of RM56.2 mln and RM1.07 bln respectively.

Comments

• There is no change to our earnings estimates for 2018 after the reported earnings came in line with expectations and we maintain our BUY recommendation on Engtex with an unchanged target price of RM1.30.

• Our target price was derived from ascribing a unchanged target PER of 8.0x to our 2018 earnings forecast of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale property development projects.

COMPANY BRIEF

• Star Media Group Bhd’s 4Q2017 net loss stood at RM155.2 mln vs. a net profit of RM39.4 mln in the previous corresponding quarter, due to lower print segment revenue and one-off expenses amounting to RM189.8 mln. Revenue for the quarter fell 17.6% Y.o.Y to RM126.3 mln.

• For 2017, cumulative net profit slipped 19.8% Y.o.Y to RM90.3 mln. Revenue for the year fell 17.9% Y.o.Y to RM517.7 mln. A second interim dividend of 6.0 sen per share was declared. (The Star Online)

• MMC Corporation Bhd’s 4Q2017 net profit declined 68.2% Y.o.Y to RM85.1, mainly due to the completion of the Klang Valley Mass Rapid Transit (KVMRT) Sungai Buloh-Kajang (SBK) line and a higher share of losses from associate company, Zelan Bhd due to an impairment of receivables. Revenue for the quarter fell 33.3% Y.o.Y to RM1.23 bln.

• For 2017, cumulative net profit decreased 59.0% Y.o.Y to RM225.4 mln. Revenue for the year contracted 10.1% Y.o.Y to RM4.16 bln. (The Edge Daily)

• Tropicana Corporation Bhd’s 4Q2017 net profit jumped 137.5% Y.o.Y RM69.6 mln due to cost savings, release of lowcost provisions and advanced progress of projects. Revenue for the quarter expanded 35.4% Y.o.Y to RM619.0 mln.

• For 2017, cumulative net profit added 62.3% Y.o.Y to RM190.5 mln. Revenue for the year climbed 30.8% Y.o.Y to RM1.91 bln. (The Edge Daily)

• Genting Bhd’s 4Q2017 net profit plunged 88.3% Y.o.Y to RM133.2 mln on greater net foreign exchange losses and a one-off disposal of RM1.27 bln of Genting Hong Kong previously. Revenue for the quarter, however, rose 10.6% Y.o.Y to RM5.26 bln.

• For 2017, cumulative net profit fell 31.8% Y.o.Y to RM1.45 bln. Revenue for the year, however, grew 9.0% Y.o.Y to RM20.02 bln. (The Edge Daily)

• Genting Malaysia Bhd’s 4Q2017 net profit sank 73.4% Y.o.Y to RM449.4 mln, in absence of a RM1.27 bln gain from the disposal of its Hong Kong investment in the previous corresponding quarter. Revenue for the quarter, however, rose 11.4% Y.o.Y to RM2.54 bln.

• For 2017, cumulative net profit decreased 59.7% Y.o.Y to RM1.16 bln. Revenue for the year, however, added 4.4% Y.o.Y to RM9.33 bln. (The Edge Daily)

• Sunway Construction Group Bhd (SunCon) bagged a RM274.0 mln contract to be the project delivery partner for the proposed expansion of a nine-storey commercial development to Sunway Carnival Mall in Seberang Jaya, Penang.

• Sunway Construction had accepted the letter of award by SA Architects Sdn Bhd, on behalf of Sunway REIT Management Sdn Bhd. SCSB will plan, coordinate, build and complete the development within 32 months from March 2018. (The Edge Daily)

• IJM Corporation Bhd’s 3QFY18 net profit dropped 26.7% Y.o.Y to RM101.4 mln, mainly due to lower contributions from its property and manufacturing and quarrying divisions and compounded with a net foreign exchange (forex) loss of RM4.5 mln. Revenue for the quarter slipped 1.9% Y.o.Y to RM1.57 bln.

• For 9MFY18, cumulative net profit decreased 18.9% Y.o.Y to RM338.6 mln. Revenue for the period, however, grew 5.3% Y.o.Y to RM4.63 bln. (The Edge Daily)

• UMW Holdings Bhd's 4Q2017 net loss narrowed to RM432.7 mln as oppose to a net loss of RM1.53 bln in the previous corresponding quarter, on lower losses from its discontinued operations. Revenue for the quarter increased marginally by 0.3% Y.o.Y t0 RM2.95 bln from RM2.94 bln.

• For 2017, cumulative net loss narrowed to RM651.2 mln vs. a net loss of RM1.66 bln in the previous year. Revenue for the year, however, gained 5.8% Y.o.Y to RM11.05 bln. (The Edge Daily)

• Press Metal Aluminium Holdings Bhd’s 4Q2017 net profit improved 13.9% Y.o.Y to RM150.2 mln, helped by higher metal prices. Revenue for the quarter increased 7.2% Y.o.Y to RM2.14 bln.

• For 2017, cumulative net profit added 24.7% Y.o.Y to RM602.8 mln. Revenue for the year climbed 22.9% Y.o.Y to RM8.17 bln. A fourth interim single tier dividend of 1.5 sen per share was declared. (The Edge Daily)

Source: Mplus Research - 28 Feb 2018